Unemployment Reaches Five-Year Peak | Money News
The unemployment rate in the UK has surged to its highest level in nearly five years, reaching 5.2% in December, as revealed by the Office for National Statistics (ONS). This figure marks an increase from the 4.1% unemployment rate recorded when the Labour Party assumed power in 2024.
Current Unemployment Trends
More individuals are actively seeking employment, while the ratio of unemployed people per job vacancy has hit a post-pandemic high. Despite these alarming signs, the overall number of job openings has shown little variation in recent months. Additionally, redundancies are on the rise, according to ONS data.
Demographics Affected by Unemployment
- Younger workers aged 18 to 24 have seen their unemployment rate climb to 14%, up from 13.7%.
- The ONS has cautioned against drawing hasty conclusions from these monthly statistics due to potential reliability issues.
Factors Contributing to Unemployment Increase
The rise in unemployment is partially attributed to legislation changes affecting workers’ rights. A survey by the Chartered Institute of Personnel and Development (CIPD) reported that over a third of employers are scaling back hiring as a result of new employment regulations.
Employment Rights Act
Enacted in December, the Employment Rights Act has established enhanced entitlements for workers, including parental leave and sick pay starting on the first day of employment. This has increased the cost of hiring due to higher national insurance contributions implemented in April.
Impact on Wages
The increase in minimum wages for younger employees has also played a role in the rising unemployment within this demographic. Catherine Mann, a senior economist at the Bank of England, highlighted this connection, noting the widening gap between private and public sector wage growth.
Wage Growth Insights
- Average public sector earnings grew by 7.2%.
- Private sector earnings experienced a lower growth rate of 3.4%.
- Overall pay rates increased by 4.2% in the three months to December, a decrease from 4.4% in the previous month.
Implications for Interest Rates
The slowdown in wage growth may provide some relief for the Bank of England. High wage increases typically exacerbate inflation, complicating efforts to stabilize prices. Currently, interest rates sit at 3.75% as the Bank aims to curtail inflation to 2%.
Market forecasts suggest an 81% likelihood of a rate cut in March, with additional reductions anticipated by September, potentially lowering rates to 3.25%.
